The Legislation of Cryptocurrency Around the World – A Comprehensive Overview
Bitcoin, Ethereum and other digital currency have seen increasing use as alternative asset classes in recent years. Governments worldwide have found difficulty in finding ways to regulate them effectively – this article gives an overview of regulation across various nations including those from Europe and North America.
European Union regulation for cryptocurrency service providers was groundbreaking; adopting measures that require crypto service providers to detect and stop illicit cryptocurrency usage. On January 2020, EU implemented their fifth Anti-Money Laundering Directive with provisions covering virtual currencies exchanges and wallet providers under EU anti-money-laundering rules; this included virtual currency exchanges/wallet providers complying with strict anti-money-laundering (AML) as well as counterterrorism funding funding (CTF). The rules also require these providers to register with local financial regulators while adhering to strict anti-Money Laundering/CTF requirements imposed upon them by AML/CTF regulations; these new rules require crypto exchange/wallets providers comply with anti money Laundering Directive 5.
US Cryptocurrency Regulation: Cryptocurrency regulation has long been an emotive topic. Under President Biden’s guidance in 2022, cryptocurrency was legally defined and clarified for use and regulation purposes – making the way clear for digital dollars and an emerging crypto economy. New guidance emphasized how digital assets and cryptocurrencies must be treated like property for taxation purposes with gains or losses having to be reported to IRS for reporting purposes; additionally they come under Bank Secrecy Act regulations mandating that cryptocurrency exchanges and businesses comply with AML/CTF regulations in 2022.
Other countries regulate cryptocurrency differently. Japan treats cryptocurrency like legal tender and taxes capital gains on it accordingly; Australia oversees cryptocurrency exchanges through their Australian Securities and Investments Commission while in China the government strictly controls cryptocurrency activity by banning crypto exchanges as well as initial coin offerings (ICO).
Governments worldwide will continue to develop and refine their regulatory frameworks as the use of cryptocurrency increases. Some nations have taken proactive approaches in their regulation while other take a more passive or hostile stance towards it; investors and traders need to stay aware of new crypto legislation developments worldwide when navigating through this complex regulatory landscape.
China has taken an expansive view when it comes to cryptocurrency regulation, yet remain at odds with global developments on cryptocurrency regulation.
China’s relationship to cryptocurrency can be complex. In 2013, the People’s Bank of China issued a warning prohibiting financial institutions from using bitcoin, while later that same year their Government banned Initial Coin Offerings (ICOs), due to fear that such offerings violate Chinese regulations for capital-raising and fraudstery.
China recently made headlines when they announced plans to create their own digital currency known as Digital Currency Electronic Payments (DCEP), to replace cash currently circulating throughout China. Unlike Bitcoin, which is decentralized currency issued and controlled by an untrustworthy organization such as Bitcoin’s owner; DCEP will instead be issued and controlled directly by China’s People’s Bank of Commerce and is being tested out across various cities throughout China.
China may prohibit cryptocurrency trading, initial coin offerings (ICOs), and peer-to-peer networks; however Chinese citizens still purchase and sell cryptocurrencies via over-the-counter (OTC), P2P networks, and exchanges such as Cryptopia or others. Although government measures have been put in place to curtail such activity by closing exchanges down and arresting individuals suspected of conducting illicit crypto transactions; Chinese citizens still find ways of purchasing crypto through OTC exchanges such as Cryptopia as well.
Chinese authorities increased their attacks against cryptocurrency in May 2021 due to concerns over financial risk and speculation. Due to this action taken against mining and cryptocurrency transactions in certain regions of China and payments companies providing these services; Chinese miners left for countries with better regulatory environments in order to continue mining cryptocurrency.
Summary: China has adopted an authoritarian stance toward cryptocurrency regulation. They have banned initial coin offerings (ICOs), cracked down on mining operations and trading, developed their own digital currency that they have trialed across various cities within China and issued it nationwide as legal tender.
Overview of cryptocurrency legislation in Canada: Canada takes an open approach to cryptocurrency, considering them digital assets rather than money or commodities. Canada’s regulatory framework for cryptocurrencies aims to strike a balance between encouraging innovation and protecting consumers.
In 2014, Canada Revenue Agency (CRA) declared cryptocurrencies to be treated like commodities subject to capital gains tax on any earnings realized from selling.
Financial Transactions and Reports Analysis Centre of Canada, (FINTRAC), issued guidelines in 2015 governing virtual currencies in Canada. According to FINTRAC’s directives, businesses engaging in the purchase, sale or transfer of digital currency must register under money services business category; additionally Canadian cryptocurrency exchanges, wallet providers or any businesses engaging in cryptocurrency transaction must abide by anti-money-laundering (AML) and counterterrorist-financing (CTF) regulations.
Canadian Securities Administrators (CSA), in June 2018, published guidance document on the application of securities laws to cryptocurrencies and initial coin offerings (ICOs). According to this guidance document, any cryptocurrency acting like securities must adhere to securities laws; while ICOs involving distribution require prospectus requirements.
In 2019, Canada proposed amending its Proceeds of Crime Act (Money Laundering and Terrorist Financing Act). This would create regulations regarding cryptocurrency exchanges and wallet providers as Money Services Businesses, or MSBs. As proposed amendments dictate, cryptocurrency businesses would need to register with FINTRAC and maintain records on transactions; reporting suspicious ones must also occur under these new measures.
Canada has taken an innovative and flexible approach in their cryptocurrency regulatory structure, seeking a balance between innovation and consumer protection. They take an proactive approach by recognising both benefits as well as risks presented by cryptocurrency usage.
United Kingdom: The UK does not regard cryptocurrency as legal tender and thus it cannot be used for paying taxes or debts, although trading or owning them remains legal despite these limitations. Furthermore, measures have been taken by government bodies in the UK to regulate this sector of trade and ownership.
In 2018, the UK announced the formation of a Cryptoassets Taskforce with representatives from Financial Conduct Authority, Bank of England and Treasury. Its primary responsibility will be assessing both risks and rewards associated with cryptoassets while creating an appropriate regulatory framework.
The FCA also issued guidance for businesses involved with cryptocurrency, including crypto exchanges and wallet providers. Such businesses must register with the FCA as required under anti-money laundering regulations and follow anti-money laundering compliance protocols.
The UK government also unveiled a regulatory regime for “stablecoins”, or cryptocurrency designed to maintain their value relative to traditional currencies, known as stablecoins. Under this regime, issuers of such products must meet specific standards before receiving permission from FCA prior to launch of their product.
Overall, the UK has taken an accommodating stance towards cryptocurrency regulation. They seek a balance between innovation and consumer protection.
Who are the crypto regulators?
There is no global cryptocurrency regulator as national governments and regulatory bodies often oversee cryptocurrency-related activities within their jurisdictions.
FinCEN of the U.S. Treasury serves as the main cryptocurrency regulator in America. FinCEN enforces laws regarding money laundering, financial crime and fraud that pertain to FinCEN enforcement of Bank Secrecy act (BSA).
The European Securities and Markets Authority is actively involved in overseeing cryptocurrency activities within Europe, particularly as regards to protection of investors and upholding market integrity. Meanwhile, European Central Bank also monitors cryptocurrency developments to understand their possible impact on financial systems.
In the UK, the Financial Conduct Authority serves as the main regulator of crypto assets. With their cautious approach and licensing system for businesses that deal in cryptocurrency.
As regulation evolves, governments and regulatory agencies alike continue to explore what level of oversight would best fit them.